Covid-19 Measures in General

Disclaimer

This report was published, in good faith, based on the prevailing information, at 1.00pm on 23 Mar 2020. The situation is changing on a daily basis and any updates to this report will be clearly marked with a date time stamp.

1 of 3 Covid-19 Measures in General
2 of 3 Covid-19 Support For Freelancers
3 of 3 Covid-19 Bounce Back Loans

Overview

The Government measures are designed to target employees and businesses which are directly affected by the Covid-19 issue. We can argue that we are all affected, but having had dealings with HMRC for 35+ years they can be tricky, and so we suggest that you keep evidence in case you need to (at a later date) show how you have been affected. That includes:

• Medical correspondence for those worst affected.
• Employer correspondence for those laid off.
• Business correspondence for those who experience a downturn.

Do not routinely delete those emails. If somebody cancels a piece of work (or worse) please keep a copy of that email for 6 years beyond the end of your trading year (or tax year).

VAT Registered Taxpayers

VAT due for quarters ended 29 Feb 2020 through to 30 Jun 2020 inclusive will not become due until 7 Aug 2020 at the earliest. This right is automatic and (Government says) no action needs to be taken. If you have VAT to pay, you can pay it on your normal due date if you wish, or hold on to the cash and pay on 7 Aug 2020. No interest will be charged. If you are due a VAT repayment these will be processed as normal.

If you pay quarterly VAT by Direct Debit and want to delay your payments then we recommend cancelling the Direct Debit now. We know from experience (foot-and-mouth disease in 2001 and the farming sector) that “this right is automatic” may not be enough to stop HMRC Direct Debit collections.

Apparently a further announcement is to be made which will allow accumulated VAT debts to be paid over time, and you are to be given until 5 Apr 2021 to bring things up to date.

Irrespective of actual payment dates, VAT returns must still be submitted within the correct time frames.

Mainstream Businesses

Most of the best measures that have been announced are contingent on you being a mainstream business, that is to say, one which:

• has commercial premises subject to business rates; and
• is eligible for either Small Business Rate Relief or Rural Rate Relief.

In these cases you will qualify for grants of up to £10,000 (originally the announcement was £3,000). Whichever local authority deals with your business rates will be in contact you and will automatically initiate the process for you.

All Businesses

Loan scheme – talk to your bank. The Government has agreed to underwrite 80% of any loan capital advanced by your bank under these emergency measures. Theoretically that makes you a lesser risk today that you were a few weeks ago. However, nothing really changes between you and the bank, your application still needs to be well founded and your repayments need to be affordable. The protection is for the bank in case your business goes bankrupt.

Employers and Employees

The Chancellor announced a new a grant from HMRC to employers to cover furloughed workers and keep people on payroll rather than laying them off. The coronavirus job retention scheme would pay up to 80% of employees’ salary to a maximum of £2,500 a month.

The job retention scheme will be backdated to 1 March, with no limit on the amount of funding, and The Chancellor stated that it will be open initially for “at least three months” but didn’t take off the table the option to extend the scheme for longer if necessary.

HMRC will implement a process to fund employers. However, HMRC is in the business of collecting tax and has less experience of handing out grants. The infrastructure to do this is currently a work in progress. Nobody knows when the first grants will be paid.

27 Mar 2019 12.30pm Update – strike out this headingSelf Employed Trade or Partnership

27 Mar 2019 12.30pm Update – new heading – All Self Assessment Cases

Self assessment tax instalments due on 31 Jul 2020 have been postponed, without interest etc, and will now become due on 31 Jan 2021. This is automatic and no action needs to be taken.

27 Mar 2019 12.30pm Update – strike out this para – Apparently you need to be in a self employed trade or be a partner in a traditional partnership to take advantage of this. That means (until we hear otherwise) that self assessment tax instalments due on 31 Jul 2020 on account of your rental income or dividend income, etc, are still due.

Freelance Limited Company

Other than claiming the 80% job retention scheme figure (see “employers” above) there are no specific provisions for small freelance limited companies.

27 Mar 2020 12.30pm update – even the eligibility for this 80% has been questioned by some legal experts. Please see this newer blogpost.

The Government is still addressing this issue and has called for submissions to made by 5pm GMT on 23 Mar 2020.

https://twitter.com/CommonsTreasury/status/1240620040803803136

Use the email address specified in that tweet and (in meaningful words) spell out precisely what you want The Cabinet Office to help with.

Other Resources

Well respected tax lecturer Giles Mooney has posted a 17 min video on YouTube:

Although we have covered key points above, clients of Proactive may be interested in the following sections:

• 10min02 – 10min40 – statutory sick pay
• 10min41 – 11min30 – the self employed
• 14min10 – 15min25 – loan guarantee
• 15min25 – 15min59 – claiming on business insurance

The Government Support for Business page is here:

https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses

The Coronavirus helpline: 0300 456 3565

This telephone number has been rebranded as the Coronavirus Helpline. It’s not a new service as some claim. It has been in existence for many years and is also known as the Business Support Helpline. As far as we know, it is mainly of use to taxpayers who wanted to negotiate “time to pay” arrangements.

Amazon Web Services UK

AWS operates globally and has set up a branch in the UK for VAT purposes.

Actually, AWS has branches in 18 countries across Europe, so the applicable VAT rules for you, depend on both you and AWS having your “local” place of business in the same EU country. If you are a UK business and you need to obtain a UK VAT receipt from AWS then use the link below. Log in to your AWS account, select the appropriate month and click on the Tax Invoices drop down menu.

https://console.aws.amazon.com/billing/home#/bills

Reclaiming foreign VAT

Your UK VAT registered business can get a refund of EU VAT for most goods and services you buy for your business.

You cannot normally reclaim GST and VAT from countries outside the EU. Nor can you reclaim EU VAT if the expense is not wholly and exclusively for the purposes of your business.

Moreover:

  • you need a proper VAT receipt from the actual supplier, addressed to your business, showing the rate of VAT charged and the exact amount of VAT charged
  • a “proforma invoice” is not a proper VAT receipt
  • what you can reclaim depends on the other EU country’s rules for reclaiming VAT
  • the rules for claiming are slightly different in each EU country
  • each EU country has set a minimum amount that can be refunded
  • if your business makes both taxable and exempt supplies, you may not be able to reclaim all of the VAT you have been charged

The minimum amount you can claim varies between EU countries, but is generally:

  • €400 for claims of more than 3 months but less than a year
  • €50 for claims for a whole year or the period between your last claim and the end of the year
  • These limits apply to countries on a case by case basis. Claiming back 10 lots of €30 across 10 different countries is not possible, as each claim would not meet the €50 minimum.
  • However, if all your EU VAT bills come from (for example) France, and the VAT totals (for example) €300 then your company will be able to make one claim for a 12 month period. With the exception of the UK, all EU states have a fiscal year which ends on 31 Dec, and all VAT refund claims for a fiscal year must be submitted before the following 30 Sep.

There is nothing to stop you from doing these EU VAT refunds yourself. We charge a minimum fee of £100 plus VAT for each EU VAT refund that we complete, so you will clearly need to do a cost benefit analysis before instructing us to complete your claim. Our fee is due on completion of the claim. Your claim is then referred via HMRC to the EU state where the VAT was suffered. It then takes between 4 and 8 months for your refund to reach you.

This system is likely to change after 31 Dec 2020 once the transition period ends and the UK no longer follows EU rules.

VAT Flat Rate Scheme – The New Rules from 1 Apr 2017

The VAT Flat Rate Scheme changes from 1 Apr 2017 when new rules come into force in a heavy handed attempt to combat abuse of the system. The FRS differs from standard VAT accounting because you pay a percentage of your business turnover rather than paying the actual VAT arising on the difference between sales and purchases.

You continue to charge clients the headline rate of 20% VAT and you can potentially benefit by remitting a smaller percentage to the taxman. The FRS rates differ from sector to sector, but for IT contractors the norm used to be a rate of 14.5%. That’s changing to 16.5%.

Generally speaking, the new rules are awful! If you want to see what HMRC said about this (in Nov 2016) the press release and draft legislation are here.

Let’s consider three examples of a software developer with net annual sales of £50,000 and net VATable costs of £5,000.

Standard VAT
accounting
Old FRS Rules
2002 – 2017
New FRS Rules
2017 et seq
Sales 50,000.00 50,000.00 50,000.00
VAT 10,000.00 10,000.00 10,000.00
Total 60,000.00 60,000.00 60,000.00
Gross sales 60,000.00 60,000.00
VAT Flat rate 14.5% 16.5%
VATable costs 5,000.00
VAT 1,000.00
Total 6,000.00
VAT in 10,000.00
VAT out (1,000.00)
HMRC remittance 9,000.00 8,700.00 9,900.00
“Standard” variation NIL £300 better off £900 worse off

Double those annual sales to £100,000 (some of our clients operate at that level) and you can see that the difference could be either £600 better off or £1,800 worse off.

And do the sums the other way around, under the new FRS rules the VAT of £9,900 represents a rate of 19.8% on the sales of £50,000. That’s a bit like saying “pay all the VAT to HMRC and claim back practically nothing”. This makes the new Flat Rate Scheme nigh on useless!

You may suggest that the software developer in the example should simply deregister because the sales of £50,000 are below the VAT registration threshold of £83,000. Yes, that’s true. And then the VAT recovered would be NIL (instead of getting £1,000 back) and so the business would still be worse off, but to a greater extent!

Wiggle Room

There is not much wiggle room, unless you incur a reasonable amount of cost on “relevant goods”. The new rules are designed to impair only “limited costs” traders. That’s nearly everyone! However, try out the formula below to see if you can escape being labelled as a “limited costs” trader. This calculation has to be done every VAT quarter (so you may find that you alternate between FRS Old Rules and FRS New Rules).

The Formula

Work out your total for VAT inclusive sales.

Calculate a figure for 2% of your VAT inclusive sales.

Work out your total for VAT inclusive costs on “relevant goods”. Goods are tangible things, so be sure to ignore costs for services like office rent, freelance workers, accountants, insurance, travel, telephone calls, etc.

For the purposes of the VAT FRS rules (unless you’re a retailer of these goods) the expression “relevant goods” excludes the following:

  • Items of a capital nature
  • Cars
  • Computers
  • Printers
  • Scanners
  • Mobile phones
  • Furniture, etc
  • Fuel for motor vehicles
  • Spare parts for motor vehicles
  • Food
  • Drink
  • Anything which has a dual personal/business use (like bicycles and parts for their upkeep)

Question 1

Is your expenditure on “relevant goods” less than £250?

Yes > the new FRS rules apply > use a rate of 16.5%
No > go to Question 2

Question 2

Is your expenditure on “relevant goods” less than 2% of your VAT inclusive sales?

Yes > the new FRS rules apply > use a rate of 16.5%
No > the old FRS rules apply > use the old rate from the table of approved rates

Conclusion

If you spend more than £250 (or more than 2% of your VAT inclusive sales – whichever is the greater) every quarter, on . . .

  • pencils
  • envelopes
  • toner cartridges
  • traditional books and magazines

. . . then you may be in with a chance. In any case, you will have to give your bookkeeper a full analysis of all the goods you buy as “stuff from Amazon for £39” is not enough to tell us if these are “relevant goods”.

In a few cases, where you’re on a really low flat rate (teachers and trainers are on a 12% flat rate under the old rules) it might be worthwhile buying a few toner cartridges every quarter and then chucking them in a cupboard until you retire from business. You might then pass the test “more than 2% of your VAT inclusive sales” and you would still get your old flat rate. This has to be assessed on a case by case basis, but I have at least one lecturer who makes so much bounty on the 12% flat rate that it’s worth his while using some of that bounty to buy “relevant goods” which will languish unused, and he will still win overall!

In all other cases, we recommend leaving the Flat Rate Scheme on 31 Mar 2017 and adopting the standard approach to VAT from 1 Apr 2017. We are writing to all affected clients with a proforma letter which needs a real ink signature and which needs to be returned to us by 28 Feb 2017 so that we can get it submitted, agreed by HMRC, and implemented at midnight on 31 Mar 2017.

A withdrawal from the Flat Rate Scheme does not change the way that you bill your clients. If you’re company is VAT regsitered then it will still be VAT registered, and we will look after your VAT for you using the standard method and not the flat rate method.

Lastly

Beware of trying to fiddle the system. Any attempt to invoice in advance for services to be provided on or after 1 April 2017, to capture that invoice within the old FRS rates, will be treated as if the invoice was issued on 1 April 2017 (paras 8.2 and 9.7 of VAT notice 733).

Invoicing foreign clients

All invoices must show the same information as your letter headed paper, business address, registered number and that sort of thing (to comply with The Companies Act 2006). The following rules also apply:

  1. The word “Invoice” must appear and be abundantly clear.
  2. Invoices must be sequentially numbered and the numbering must be purely numeric.
  3. The date of the invoice must be shown.
  4. The name and address of the person being invoiced must appear. This is the name of your customer and not the name of the individual in their head office. If your customer is a business called XYZ Trading Ltd then the invoice should be addressed to XYZ Trading Ltd. You can for example also mark the invoice “F.A.O. Mr Jones” if you wish, but if you address it directly to Mr Jones then (in law) it looks like your are charging the fee to Mr Jones and making him personally liable for the debt.
  5. If your UK business is VAT registered, the invoice must show a proper analysis of how the VAT has been calculated. A sub-total row, followed by a VAT calculation row which includes both the applicable VAT rate and the VAT payable, and finally a total row.
  6. VAT invoices must show your VAT registration number.
  7. VAT invoices to all UK customers must charge VAT at the current standard rate. There are a very few limited exceptions to this rule – talk to us if you sell “advertising space” to registered charities.
  8. If you sell downloadable eServices from your website please read about VATMOSS  first and then come back and read this! Normally, VAT invoices to EU customers (for services) must charge VAT at the current standard rate (as of 4 Jan 2011 that’s 20%) unless that customer is VAT registered in their State of origin.
  9. VAT invoices (for intellectual services) to VAT registered businesses in the other 27 EU States must show the customer’s VAT number (usually below their address) and charge VAT at a special rate of 0%. The phrase “intellectual services” means the services of people like accountants, lawyers, teachers etc where what you are paying for is primarily knowledge and/or skill. It may or may not include advertising and sponsorship, and conferences and catering, when any of these services are performed in the UK. Talk to us if this applies to you.
  10. If you cannot verify the VAT number of your EU customer on the Europa website then you must assume that they are not VAT registered and that means charging them 20% VAT!
  11. VAT invoices to customers outside the EU vary depending on what you supplied and where you supplied it. If you supply intellectual services to a non-EU customer then the services are “outside the scope” of VAT and the VAT calculation row on the invoice should simply state “outside the scope”. In all other cases you may want to check the “place of supply” rules with us, and the meaning of “intellectual services” before you invoice your non-EU customer.
  12. VAT invoices must be in GB Pounds. If you wish, you can show a different currency in the narrative within the “description of product/service”. It has to be done like this to comply with Reg 14(1)(i) The Value Added Tax Regulations 1995 and that allows VAT officers to quickly identify the right figures when they carry out a records inspection. If your client objects tell them you have to do it in GBP and the law is set out here.
  13. Your policy on preparing currency conversions must have a reasonable basis, and be consistent each time. Our policy is to use average monthly rates as per the HMRC published figures and that way there is never any dispute over the authenticity.

You cannot charge VAT to clients until your VAT registration is confirmed. If in doubt, please consult your accountant before charging anybody VAT.

If you are in the habit of billing your clients with local currency figures in your narrative, then you will get used to the fact that the remittance you receive is normally less than the amount you invoiced. You may want to bear this is mind when generating your invoices so that you can figure in a little extra for bank charges and exchange rate losses.

When you pass your records to the bookkeeper, we will check for bank charges and exchange rate losses (or gains). If the bank charges are clearly shown, then we will record them as such. If that still leaves a small exchange rate loss (or gain) the we will record that separately as an allowable expense (or other income) and so your business will be taxed correctly on the amount that it has actually received. There is no need to for you to prepare any other documentation to show the loss (or gain) and we will calculate it using the monthly exchange rates published by HMRC.

Your invoice to your foreign client should fit one of these three examples.

Example 1 of 3

Non UK client in the EU with an EU VAT number

Example 2 of 3

Non UK client in the EU without an EU VAT number

Example 3 of 3

Non UK non EU client with a “rest of the world” billing address

VAT invoices – the fine details

All businesses need standardised documents for their correspondence and invoices. An invoice is basically a standard letterhead with the addition of a number of billing points. The examples set out here assume that your business is a limited company.

VAT invoices must show:

  1. Your address and the address of your company registered office. If your company registered office and your principal place of business are one and the same, you only need to show the address once, provided that it is clear that they are one and the same!
  2. Your company registration number.
  3. Your VAT registration number.
  4. The date of the invoice.
  5. The invoice number. Invoices must be sequentially numbered, using a plain and simple, and purely numeric system. Do not skip numbers. Invoices must run in number order and also in date order. Do not use a number on draft invoices if that results in the sequence becoming broken. Draft invoices should only be given a number when they are finalised and issued.
  6. The name and address of the person being invoiced. This is the name of your client and not necessarily the name of the individual who works there. You can for example mark the invoice “F.A.O. Mr Jones”, but it should be addressed to the client, for example “London Time Machines Ltd”.
  7. The amounts in GB Pounds. If you wish, you can show a different currency within the dialogue within the invoice, but not where it’s likely to confuse a VAT officer. In the event of a records inspection, the VAT officer must be able to clearly see the GBP figures, and especially the ones at the foot of the invoice.
  8. A sub total line, showing the net figure excluding the VAT.
  9. A VAT line, showing the applicable rate and the VAT amount in isolation.
  10. A total line, showing the sum of the net amount and the VAT.

Example Letterhead
Example Invoice (non-VAT)
Example Invoice (VAT)

Once an invoice has been issued to a client, it should never be amended. If there is anything wrong with an invoice the correction must be done in the way we have set out here https://www.proactive.ly/news/?p=353

Disbursement or Expense?

What is the VAT treatment on recharged expenses?

There is little logic in VAT legislation, and so the system is set out here for your information. Whether we like it or not, we have to follow the rules!

If you are VAT registered, then you charge VAT to your clients, on top of the cost of your product or services.

If in the course of doing that you incur expenses and you want to recharge those expenses, then you have to charge VAT on top of the expenses as well. The rate is the same rate that you would use for charging VAT on fees (and that can vary). The absurdity of this “VAT on recharged expenses rule” means that (for example) the cost of a train ticket which is normally exempt from VAT, becomes a VATable item the moment you recharge it to a client.

Any expense which you “consume” and then recharge to your client falls into this VAT catchment area. The only time you can avoid charging VAT on an expense is when it falls into the narrow definition of a “disbursement”.

That’s for things that you do not consume as part of your service, but which you pass on intact to your client, or on behalf of your client. In the case a solicitor handling a house purchase, the stamp duty is a disbursement and not an expense. It is not “consumed” as part of the service which the solicitor provided.

Likewise, if I recharge the costs of providing my clients with tea, coffee and milk, then I need to add VAT to the bill (even though food is not liable to VAT). Whereas if I bought a carton of milk for you and handed it over, unused and unopened, then it would be classed as a disbursement.

Crazy, but true. As a general rule add VAT on top of all the expenses that you recharge to your clients!

VAT Payments

VAT is normally due within one calendar month of the VAT quarter.

Even though the quoted date may be 7 days later than the month end, it still makes sense to think of the payment as being due at “the end of the following month”. The reason for this 7 day grace period is that HMRC’s bank does not operate the “faster payments service” and it can take up to 7 days for your payment to reach them!

Please make the payment to the “VAT Controller” in good time, based on our quarterly email. The 300330 report which we prepare also shows this figure at line 5

Your bank may list the VAT controller under HMRC or under VAT. It may also show either the SHIPLEY address or the old SOUTHEND address. If the online banking facility is not clear, then you should specify these details:

• HMRC VAT SHIPLEY
• sort code 08-32-00
• account no. 11963155
• ref – your VAT number

The other way to pay is to set up a direct debit, so that they can simply take the money off you when they like. Debits are normally taken one month and 11 days after the end of the VAT quarter. Be sure to have funds available in your account by the 11th of the relevant month.

The VAT Controller postal address

We send correspondence to the Revenue and the VAT office by Special Delivery. Even when we do that, Royal Mail can still sometimes fail to deliver.

Whilst most VAT returns are submitted by us electronically, some still have to go in on paper. We posted 4 VAT returns by Special Delivery on 30 Jul 2009 within a guaranteed delivery date of 31 July 2009. If you were affected, the tracking number was ZW 2614 4011 7GB. The letter apparently arrived at the VAT Central Unit on 3 Aug 2009. We are still trying to resolve the fallout from that, and Royal Mail have refused the claim for the refund of the Special Delivery fee as (they say) the post code was wrong!

Having raised this with the VAT central unit, we will no longer use the address on the envelopes:

  • VAT Controller
  • VAT Central Unit
  • BX5 5AT

And, instead we will be using the full postal address (and recommend that you do the same):

  • HM Revenue & Customs VAT Controller
  • Accounts Office
  • Salts Mill Rd
  • Shipley
  • Bradford, BD98 1YY

Let’s see if that helps Royal Mail to do things properly.

Claiming back expenses from your own Limited Company

You may be familiar with this process if you have ever been employed and had to submit an expense claim. As a director of your own limited company the process is the same, and it applies where directors and employees have used personal cash or a personal bank card to pay for a business cost.

It’s better to have all your suppliers invoice your company directly, and have the company pay them directly. If that could be done, you would never have to fill out a personal expense claim form.

Keep the receipts for all of the things that you buy personally, on behalf of your business. Then once a month (or perhaps at some different interval) fill out a claim form and ask your company to reimburse you. If there is ever a records inspection by the tax office, they will want to see the claim forms with supporting receipts, and they will also check that the reimbursements on the company bank statements match the amounts claimed on the expense forms.

Motor expenses

Mileage on business journeys should be claimed at the HMRC approved rate. These have been the same since 6 Apr 2011.

• 45p per mile – first 10,000 miles per year
• 25p per mile – additional miles

No other motoring costs are to be claimed. The FPCS rates from HMRC are calculated by the AA so as to cover all the conceivable running costs of having a car! That means that you have to keep a log of all of your business journeys in your own car.

Foreign Currencies

Separate out any expense receipts which are in foreign currencies and prepare an individual claim form in each separate currency. That way the sub-totals do not end up with mixed currencies.

Non-VAT Registered Businesses

Use two forms, one form for mileage and just one form for all other business expenses. Separate the receipts by category and claim back the gross amount including VAT. Use the non-VAT form in the samples below, and just put all the figures on that.

VAT Registered Businesses

Separate your personal expense items according to whether they have VAT on them or not. VAT receipts for motor fuel belong in another separate pile. VAT on fuel can be reclaimed, but only to the extent that it is vouched for on actual VAT receipts.

Use three forms, one form for mileage and two separate forms covering expenses with VAT and expenses without VAT.  As a director/employee you are claiming back all of the gross amounts including all the VAT. The bookkeeper needs to know which items include VAT and which ones don’t. That’s why there are three different forms for a VAT registered business.

Book keeping and sample forms

If you are doing your own book keeping, use the totals at the foot of each column and post them into your software. To download a sample form (MS Excel) right click on the link and select “save as” . . .

• Mileage Claim
• Non-VAT Expenses
• VAT Expenses

Expenses in the first month or two

Normally a new business, will lead to cash expenses which you want to reclaim, before you have any funds to pay them. There are two ways to handle this dilemma.

• Wait until the business can afford to make the reimbursement.
• Introduce working capital (use a round sum) into the business, and then reimburse yourself!

Over the course of the financial year movements in capital introduced and capital withdrawn accumulate and may be shown in the annual accounts as a loan from the director to the company. Take care, because capital movements can sometimes work the other way. If you take too much capital out of the company, the loan is the other way around and there can be adverse tax consequences.

Recharging Costs to customers

Company’s do not claim from customers, they invoice.

Company’s are not reimbursed by customers, they have a receipt.

Reserve the expressions claim and reimburse for activities that occur between you (or your staff) and your company.

If your company recharges costs to a customer it is done on an invoice. The amounts recharged are usually liable to VAT. See the Disbursement or Expense report for more details of what may and may not be liable to VAT.

In a legal sense transactions between you and your company, and transactions between your company and your customers are entirely different obligations.

The terminology matters. This is one of the few situations where all accountants, bookkeepers and VAT officers need you to understand this concept fully.

Staff claim and staff are reimbursed.

Company’s do not claim from customers, they invoice.

Company’s are not reimbursed by customers, they have a receipt.